Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Amazon Beverages produces and bottles a line of soft drinks using exotic fruits from Latin America and Asia. The manufacturing process entails mixing and adding

Amazon Beverages produces and bottles a line of soft drinks using exotic fruits from Latin America and Asia. The manufacturing process entails mixing and adding juices and coloring ingredients at the bottling plant, which is a part of Mixing Division. The finished product is packaged in a company-produced glass bottle and packed in cases of 24 bottles each.

Because the appearance of the bottle heavily influences sales volume, Amazon developed a unique bottle production process at the companys container plant, which is a part of Container Division. Mixing Division uses all of the container plants production. Each division (Mixing and Container) is considered a separate profit center and evaluated as such. As the new corporate controller, you are responsible for determining the proper transfer price to use for the bottles produced for Mixing Division.

At your request, Container Divisions general manager asked other bottle manufacturers to quote a price for the number and sizes demanded by Mixing Division. These competitive prices follow.

Volume Total Price Price per Case
430,000 equivalent casesa $ 3,225,000 $ 7.50
860,000 5,590,000 6.50
1,290,000 7,353,000 5.70

a An equivalent case represents 24 bottles.

Container Division's cost analysis indicates that it can produce bottles at these costs.

Volume Total Cost Cost per Case
430,000 equivalent cases $ 2,679,000 $ 6.23
860,000 4,528,000 5.27
1,290,000 6,377,000 4.94

These costs include fixed costs of $830,000 and variable costs of $4.30 per equivalent case. These data have caused considerable corporate discussion as to the proper price to use in the transfer of bottles from Container Division to Mixing Division. This interest is heightened because a significant portion of a division managers income is an incentive bonus based on profit center results.

Mixing Division has the following costs in addition to the bottle costs.

Volume Total Cost Cost per Case
430,000 equivalent cases $ 1,830,000 $ 4.26
860,000 2,630,000 3.06
1,290,000 3,430,000 2.66

The corporate marketing group has furnished the following pricedemand relationship for the finished product:

Sales Volume Total Sales Revenue Sales Price per Case
430,000 equivalent cases $ 8,729,000 $ 20.30
860,000 15,738,000 18.30
1,290,000 19,737,000 15.30

Required:

a. Amazon Beverages has used market pricebased transfer prices in the past. Using the current market prices and costs and assuming a volume of 1.29 million cases. Calculate operating profits for Container Division, Mixing Division, Amazon Beverages.

mazon Beverages has used market pricebased transfer prices in the past. Using the current market prices and costs and assuming a volume of 1.29 million cases. Calculate operating profits for Container Division, Mixing Division, Amazon Beverages. (Enter your answers in thousands of dollars.)

Profits for Container Division
Profits for Mixing Division
Profits for Amazon Beverages

b-1. Calculate operating profits for Container, Mixing and Amazon Beverages for volumes of 430,000, 860,000 and 1,290,000 cases.

Calculate operating profits for Container, Mixing and Amazon Beverages for volumes of 430,000, 860,000 and 1,290,000 cases. (Enter your answers in thousands of dollars.)

430,000 cases 860,000 cases 1,290,000 cases
Container profit
Mixing profit
Amazon Beverages profit

b-2. Which volume of production is the most profitable for Container, Mixing and Amazon Beverages?

Which volume of production is the most profitable for Container, Mixing and Amazon Beverages?

Most profitable volume for Container
Most profitable volume for Mixing
Most profitable volume for Amazon Beverages

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Accounting questions

Question

using signal flow graph

Answered: 1 week ago

Question

5-16. The board cannot act without a consensus of opinion.

Answered: 1 week ago